Revenue for the three-month period also rose 17.89% year-on-year (YoY) to RM1.12 billion from RM946.04 million. Earnings per share (EPS) stood at 9.53 sen against 9.14 sen in 4Q17.

For the full financial year (FY18), the Islamic financial holding company’s net profit grew 10% to RM682.06 million from RM619.84 million, while revenue jumped 12.9% to RM4.2 billion from RM3.72 billion posted in FY17.

“We are very pleased to announce that the strong performance translates to an after-tax return on equity (ROE) of 15.4%, outpacing most industry peers,” BIMB CEO Mohd Muazzam Mohamed (picture) said in a statement yesterday.

“(FY18) EPS was also higher at 40.36 sen compared to 37.94 sen in the previous financial year, while net asset per share improved to RM2.97 compared to RM2.77 as at the end of December 2017,” he added.

The group’s performance is mainly dependent on its two main subsidiaries — Bank Islam and Takaful Malaysia.

For the 12-month period, Bank Islam’s profit before zakat and taxation (PBZT) increased 5.6% to RM810.3 million against RM767.1 million a year ago.

The income growth was a result of the increase in the base rate and base financing rate by 25 basis points effective February 2018, and a strong financing growth of 8.5%.

Its strong assets quality was reflected in the low gross impaired financing ratio of 0.92%, lower than the 0.93% registered at the end of 2017, which compared positively against the 1.49% registered by the banking system as at end-November 2018.

Meanwhile, Takaful Malaysia’s PBZT jumped 32.9% to RM337 million for FY18, compared to RM253.7 million last year, attributable to higher net wakalah fee income arising from the robust business growth in the family and general takaful businesses.

Its operating revenue rose 23.4% in the year to RM2.64 billion from RM2.14 billion in FY17, due to higher sales generated by both family and general takaful businesses.

For the 12-month period, family takaful’s gross earned contributions grew 27.2% to RM1.61 billion, mainly attributable to higher sales from credit-related products, while general takaful’s gross earned contributions were up 23.7% to RM685.8 million, contributed by the fire and motor classes.

Moving forward, BIMB said the Malaysian banking sector is expected to remain stable in 2019, despite ongoing challenges such as moderating loan growth and margins.

“Industry loan growth is expected to moderate to 5.1% in 2019 from 6.2% in 2018,” the group noted, adding that despite the challenging outlook for the banking industry, Islamic finance is expected to continue to be a major growth contributor to the banking industry.

The sector's non-performing financing (NPF) ratio improved to 3.2% (2017: 3.9%), the narrowest gap to conventional banks (2.6%) since 2013. This was mainly due to write-offs of legacy problem assets at the four largest sharia banks, which account for over 50% of the sector's assets. The NPF ratio is based on financing overdue by more than 90 days.

Profitability improved significantly, reflected in a higher return on assets of 1.5% (2017: 0.8%) owing mainly to lower credit costs as a result of better asset quality. Nevertheless, it remains lower than the conventional banks' average of around 2.0%.

The Islamic banks' total capital adequacy ratio (CAR) rose to 21.3% (2017: 17.9%), helped by better profitability and capital raisings, including IPOs, at a few of the larger banks. This brought the CAR level closer to the conventional banks' average of 22.8%. Liquidity appears manageable, with the sector's financing-to-deposits ratio at 87.4%. This is much lower than the conventional banks' 93.8%.

Fitch expects financing at Indonesia's Islamic banks to continue to increase in double digits in 2019, supported by the sector's improved capitalisation and ample liquidity. However, we expect funding costs and asset quality in the sector to be pressured by higher domestic interest rates, although such challenges should be manageable for most banks.

The Islamic banks' total capital adequacy ratio (CAR) rose to 21.3% (2017: 17.9%), helped by better profitability and capital raisings, including IPOs, at a few of the larger banks. This brought the CAR level closer to the conventional banks' average of 22.8%. Liquidity appears manageable, with the sector's financing-to-deposits ratio at 87.4%. This is much lower than the conventional banks' 93.8%.

Fitch expects financing at Indonesia's Islamic banks to continue to increase in double digits in 2019, supported by the sector's improved capitalisation and ample liquidity. However, we expect funding costs and asset quality in the sector to be pressured by higher domestic interest rates, although such challenges should be manageable for most banks.Indonesia has the largest number of Islamic banks in the world, with a total of 75 banks at end-2018 consisting of 14 Islamic banks, 20 Islamic bank units and 41 Waqf banks. Indonesia's financial regulator, OJK, aims to increase the diversity and availability of sharia-compliant products as part of efforts to enhance financial inclusion.

In the capital markets, corporate sukuk issuance only accounts for around 4% of the total corporate debt capital market, well below conventional issuance. However, Fitch believes that there is significant growth potential as issuers seek to diversify their funding sources and investors gain greater familiarity with Islamic debt.

Thursday, 21 February 2019

KUALA LUMPUR: Being the world’s biggest sukuk issuer, Malaysia is set to attract more demand for shariah-compliant bond worldwide via an initiative taken by the Qatar Financial Centre (QFC) to serve the US$2 trillion global Islamic finance market, said the Bond and Sukuk Information Exchange (BIX Malaysia).

BIX manager Ahmad Al Izham Izadin said there were huge opportunities for Malaysia to leverage this ambitious plan, serving not just Muslim countries but also non-Muslim countries seeking Islamic financing.

“By having this alliance too, other countries can actually take advantage of the demand from investors in Malaysia.

“(And) at the same time, we can also have more options by having other countries joining us in terms of investments… But, of course, we have to be careful of the currency,” he told Bernama on the sidelines of the Second Islamic Fintech Dialogue 2019 (IFD2019), here today.

In December last year, Qatar announced its initiative with Malaysia and Turkey to serve the global Islamic finance market from hubs in the three countries using common platforms and technology as it moved away its high dependence on the oil and gas sector.

Under the plan, QFC chief executive officer Yousef Mohamed Al Jaida was reported as saying that “Turkey would cover Islamic finance needs in Europe, Qatar would serve the greater Middle East and Malaysia would sell to Asia”.

As one of the leaders in the world’s biggest sukuk issuers, Malaysia commanded about 34 per cent of the global market as at 2018.

Echoing the QFC’s initiative, International Shari’ah Research Academy for Islamic Finance (ISRA) executive director Prof Dr Mohammad Akram Laldin said Malaysia was of the same view.

“Malaysia supports the initiative to have common standards with other financial hubs to instil confidence in Islamic finance. We need to be more committed to forge the standards in legality, taxation and governance of Islamic finance with as many nations,” he said.

Mohammad Akram highlighted that as at 2018, Malaysia remained one of the world’s biggest issuers of sukuk, or Shariah-compliant bonds, amounting to RM112.4 billion, adding that the value represented a third of the global market.

He recalled that Bank Negara Malaysia signed a memorandum of understanding with the regulatory authorities of Qatar and Dubai in 2007 to promote mutual cooperation.

Meanwhile Ahmad Al Izham, who was one of the panellists during a dialogue titled “Compete or collaborate”, said that there were not enough competition in the Malaysian business landscape to disrupt and making it more vibrant and promote a healthy competition.

“If you look at businesses abroad, there are so many startups coming in into the country to disrupt businesses, but not in Asia and Malaysia.

“There are some successful cases like Grab and this is the kind of disruption that we need to do in fintech,” he added.

The second edition of IFD2019 today saw the launch of the Finterra Waqf Chain, the first and only platform in the world that has specifically developed a blockchain-based solution to crowdfund waqf charity, Islamic investments and peer-to-peer lending.

Themed “Providing FinTech Insights to the Disruptors and the Disrupted”, the two-day conference focused on the mechanisms and instruments that were in place to support Islamic FinTech development and create new opportunities in the overall development of Islamic finance. — Bernama

Wednesday, 20 February 2019

Fitch Ratings says in a new report that asset-quality metrics remain solid at Kuwaiti Islamic banks but concentration remains their biggest risk. Kuwaiti Islamic banks had a 38% market share of total banking system assets at end-1H18. Islamic banking activities are only undertaken by Islamic banks as the Central Bank of Kuwait (CBK) does not permit conventional banks to operate through Islamic windows.

Impaired financing ratios have improved since the global financial crisis. The average impaired financing ratio remained stable in 1H18. Financing impairment charges (FICs)/average gross financing ratios fell in 1H18 due to better underwriting standards and as banks no longer needed to build high financing loss allowances. Islamic banks are typically more exposed to the real estate sector as they are allowed to establish non-financial real estate subsidiaries.

Operating profitability metrics have improved due to lower FICs and remain above conventional banks'. The net financing margin also remains above conventional banks' and improved slightly in 1H18, mainly due to Kuwait Finance House (KFH), which has significant high-margin non-Kuwaiti activities, particularly in Turkey. KFH is the largest Islamic bank in Kuwait, with 60% of Islamic and 26% of total banking sector financing. The discussed merger between KFH and Bahrain's Ahli United Bank would create one of the largest Islamic banks in the region.

The average Fitch-calculated gross financing/deposits ratio has been almost flat, benefitting from Islamic banks' strong retail franchises (particularly KFH and Boubyan). Term corporate-customer deposits are the main source of funding, which includes profit-sharing investment accounts (PSIAs). Deposit concentration remains high, except for KFH due to its high proportion of retail deposits. Islamic banks rely less on market funding. The CBK deposit guarantee covers Islamic banks including unrestricted PSIAs.

Fast financing growth has resulted in a reduction in capital ratios, which remain adequate for the banks' risk profiles. While the equity/assets ratio was 1.5% higher for conventional banks at end-1H18, Islamic banks tend to have higher regulatory capital ratios due to a 50% Alpha factor applied to risk-weighted assets to account for the loss-absorption capacity of PSIAs.

In 2018, the CBK Shariah Supervisory Governance instructions became effective, introducing best practice for Islamic banks. The CBK is working on a draft law to create a centralised sharia board to oversee Islamic banks. This is likely to increase standardisation and lead to greater market confidence. CBK regulations take account of Islamic banks' specificities, such as the Alpha factor and direct investment in real-estate.

In 2019 asset quality will remain sensitive to concentration risk and volatility in the real estate sector. Financing growth is expected to remain above that of conventional banks' in the mid-single digits as Islamic banks build their franchises and as Islamic banking is gaining momentum in Kuwait, in particular with retail customers.(Fitch Ratings-London-20 February 2019)

Tuesday, 19 February 2019

The Islamic finance (IF) industry in Kenya is considered relatively well developed. It ranks ahead of many African peers in terms of vibrancy and the potential for further growth.

With the growing number of the IF industry players locally, which include banks, insurance firms, cooperative societies and pension funds, the industry will boost Nairobi as the IF hub in the region.

However, there are still a number of issues that need to be addressed to sustain its growth momentum and for us to realise its full potential.

This includes the development of an enabling institutional and market-related infrastructure, the legal, regulatory, tax and human capacity matters that require special attention to overcome the barriers to the growth of the industry.

Lack of Shariah-compliant liquidity management options also continue to limit the performance of the industry and it’s time to scale up the industry through the issuance of Sovereign Sukuk.

Sukuk is considered to be one of the most innovative capital markets instruments that the Sovereign entities embrace in their bid to bolster their efforts to develop financial hubs, meet financing needs, diversify investor base and achieve financial inclusion.

Investor base

The issuance of Sukuk helps address liquidity management and balance sheet restructuring for the market players. The UK, Luxemburg, and Singapore have integrated Islamic finance in their financial systems to enable them to diversify their investor base and enhance their global competitiveness as financial hubs.

Sukuk is plural for ‘’Sakk’’ is considered an innovative and dynamic Shariah-compliant bond with features and benefits similar to conventional bonds. Accounting and Auditing Organisation for Islamic Financial Institutions defines Sukuk as ‘’certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or in the ownership of the assets of a particular project or special investment activity’’.

It is appreciated that Sukuk strengthens the connection between the real sector and the financial sector of the economy on the basis of the underlying assets on which the funding is structured to generate returns for the bondholders.

The need to have a Special Purpose Vehicle (SPV) set up to serve as an intermediary in the issuance process must be conformed to as a standard practice. This means that governments cannot directly issue Sukuk without an SPV.

States keen on the issuance of sovereign Sukuk ought to have the necessary legal infrastructure in place for the establishment of the SPV.

Public assets

The administrative and operational aspects relating to the defined class of public assets in the execution of underlying transactions as well as the management of the SPV should be anchored in legal, regulatory and policy frameworks.

Different jurisdictions have so far issued Sovereign Sukuk. This is through innovative approaches that take into account their national values and cultural as well as religious sensitivities.

For example, the UK became the first western government to issue a sovereign Sukuk on the basis of provisions that recognise ‘alternative finance arrangements’ put in the Finance Act of 2008. This Act was complemented by the passing of the “Government Alternative Finance Arrangements Regulations” in 2014 which made provisions to support the establishment of SPV as the intermediary company for Sukuk issuance.

The involvement of SPV in the Sukuk transactions serves the interest of stakeholders in the employment of the assets that generate the required cash flow and also ensures compliance with the Shariah principles.

It also helps in safeguarding public interests and assets by facilitating the integrity of the transaction and compliance with contractual obligations as well as land laws that restrict financial transactions and other related engagements with private entities.

Kenya can leverage the partnership with the World Bank and other developments partners to boost our capacity to issue a sovereign Sukuk sooner than later.

KUALA LUMPUR: Malaysia supports Qatar Financial Centre’s proposal to have common platforms and technology with other nations to serve the US$2 trillion global Islamic finance market.

“Malaysia supports the initiative to have common standards with other financial hubs to instil confidence in Islamic finance,” said International Shari’ah Research Academy for Islamic Finance (ISRA) executive director Professor Dr Mohammad Akram Laldin.

He noted that Malaysia is a global pioneer in the capital markets, having established the first Islamic bank in 1983 and initiated the first Islamic insurer in 1984.

Malaysia continues to be one of the world's biggest issuers of sukuk, or Shariah-compliant bonds, amounting to RM112.4 billion as of December last year. This value represented a third of the global market.

He recalled that Bank Negara Malaysia had signed a memorandum of understanding with the regulatory authorities of Qatar and Dubai in 2007 to promote mutual cooperation.

For more than a decade, efforts to consolidate the fragmented global Islamic finance industry has not reached consensus. This is marred by regional rivalries and a lack of common standards.

“We need to be more committed to forge common standards in legality, taxation and governance of Islamic finance with as many nations,” said Akram told reporters on the sidelines of the Islamic Fintech Dialogue 2019 (IFD 2019) here today.

Akram was responding to a recent suggestion by Qatar Financial Centre chief executive officer Yousef Mohamed Al Jaida that three Muslim countries namely Qatar, Malaysia and Turkey can work together to globally raise the profile of Islamic financing.

“We have this vision that Turkey would cover Islamic finance needs in Europe, Qatar would serve the greater Middle East and Malaysia would sell to Asia,” QFC’s Yousef had reportedly said on the sidelines of the Doha Forum 2018 two months ago.

Currently, established financial hubs such as the London Stock Exchange is a global venue for the issuance of sukuk, while Hong Kong and Luxembourg have also made inroads but QFC believes the market should be led by Muslim countries.

A growing number of organisations from outside the Middle East region are turning to Islamic finance and in particular to sukuk instruments to raise funds for infrastructure and development projects, according to a UAE-based investment banking expert.

The merits of Islamic finance are expected to allow the sector to grow into new geographies, says Zahid Aslam, managing director of investment banking at Dalma Capital Management. Aslam's comments come as the firm reports an almost one-third jump in enquiries regarding Sharia-compliant bond issuances from corporations outside of the GCC.

The news follows S&P Global Ratings predicting in January the global issuance of Sharia-compliant foreign and local currency bonds is expected to reach as much as $115bn this year.

"Examples include a refinery initiative in the CIS region and a scheme to help develop eco-tourism and sustainable farming in several African nations. We are also seeing interest from Malaysia, Indonesia and Pakistan.”

"It is our experience that sukuk-based solutions are establishing themselves as an increasingly attractive alternative for the funding of infrastructure and development projects," observed Aslam.

"For example, we are currently working with clients on a variety of ‘off-the-beaten path' projects, including a refinery initiative in the CIS region and a scheme to help develop eco-tourism and sustainable farming in several African nations. We are also seeing interest from Malaysia, Indonesia and Pakistan."

He continued: "I would suggest that there are five main drivers for this significant upward trend for sukuk-issuance to continue this year and beyond. First, lower oil prices - despite recent gains - have created a funding shortfall for many.

"Second, there is notable and mounting pressure on global liquidity. Third, the U.S. Federal Reserve's ongoing plans to slowly raise interest rates, making borrowing more expensive. And global regulation is becoming more Islamic finance-friendly.

"Finally, general awareness outside the GCC of the uses and benefits are becoming ever-more understood and valued. Dalma Capital, being a licensed and regulated asset manager and investment boutique with a network of institutions and accredited partners, provides all the necessary solutions for sukuk issuers and investors."

Zachary Cefaratti, CEO at Dalma Capital added: "There is growing evidence that potential borrowers who had never considered Islamic finance are better understanding the clear benefits of such solutions."

The three predominantly Muslim countries out of ten in the Association of Southeast Asian Nations (Asean), namely Malaysia, Indonesia and Brunei, are on the way to form a new hub for Islamic finance and the wider halal industry through their current roadmaps to develop the sector.Malaysia, which is already one of the countries with the largest Islamic finance industry globally, is currently moving towards the conclusion of its Financial Sector Blueprint 2011-2020 which aims at establishing the country as an international centre for Islamic finance. The country has built a highly developed and comprehensive Islamic financial system, supported by a robust regulatory and supervisory regime and a broad spectrum of ancillary services and increased liberalisation, which intensifies the internationalisation process, reinforced by more developed Islamic financial markets and financial infrastructure globally. In Malaysia, financing based on Islamic principles should reach 40% of total financing in 2020, up from 29% in 2010, underpinned by greater outreach and product innovation. The Islamic banking industry has expanded from 6% to 22% of the overall banking sector in terms of assets in the last decade, while the sukuk market now accounts for 55% of the debt securities market. The sector has also been supported by the creation of industry bodies such as the Islamic Banking & Finance Institute Malaysia, a one-stop Islamic finance reference centre for the industry and academia; the International Centre for Education in Islamic Finance, Malaysia’s global university of Islamic finance; the International Shariah Research Academy for Islamic Finance and a single reference body for Shariah matters, the Shariah Advisory Council of the country’s central bank. All this was augmented by a five-year Islamic fund and wealth management initiative, rolled out in 2017, as well as a liquid and broad range of product offerings.Indonesia is this year reaching the end of the cycle of it Islamic finance roadmap 2017-2019 which has set clear policy directions and priority programmes such as strengthening and harmonising regulations and supervision in the sector; enhancing the quantity and quality of human resources and information technology; improving service quality and product diversity; and establishing a central Shariah committee for Islamic finance with representatives from the government, the financial supervisory authority and the central bank. Getting Islamic banks involved in the management of government funds and government-owned enterprise funds; setting guidelines for taxation, regulation and stress tests for Islamic finance institutions, and, in general, enhancing literacy in Islamic finance among the population and strengthen the positioning, differentiation and branding of Islamic banks are supporting the industry.According to Muliaman Darmansyah Hadad, chairman of Indonesia’s Financial Services Authority, the roadmap – which is actually accompanied by two others for the Shariah capital market and the Shariah non-bank financial industry – should set the fundamentals to substantially increase the current market share of Islamic finance in Indonesia, which is still low at about 5% of assets, as well as increase the limited variety of products and reduce the lack of knowledge about Shariah-compliant finance.The small nation of Brunei has also set itself ambitious goals for Islamic finance in its Financial Sector Blueprint 2016-2025 with a key focus on strengthening the country as an international Islamic finance hub with a more diverse foreign presence and a higher level of foreign participation in the domestic Islamic financial markets, particularly in sukuk and takaful. This involves the introduction of more innovative Shariah-compliant financial products and services that meet the more diverse global demands for Islamic finance solutions. The eventual aim is to leverage Brunei’s Islamic finance credentials by entering joint-ventures with international financial institutions such as fund management firms and takaful operators by providing an enabling environment for asset managers to bring Islamic funds from worldwide markets into Brunei for Shariah-compliant rating and management for further global distribution.And Brunei is off to a good start. According to the Autoriti Monetari Brunei Darussalam, the country’s Islamic banking assets were valued at more than $11.2bn as per latest available figures in 2017, compared to $10.9bn in 2016. This marks 64% of the country’s total banking assets, maintaining Brunei’s rank as one of the top ten Islamic finance markets globally in terms of domestic market share.Taking all three countries together, there is a target market for Islamic finance and a broader halal industry of a combined population of close to 300mn people, which is almost half the total population in Asean, underlining the opportunities the sector entails.Source: Gulf Times - 19 February 2019---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.comIslamic Investment Malaysia: www.islamic-invest-malaysia.com
Pelaburan Unit Amanah Islam: www.unit-amanah-islam.blogspot.my

Moody’s vice-president and senior analyst Alexander Perjessy said the international rating agency projects global sovereign sukuk issuance to increase to US$87 billion in 2019 and rise towards US$100 billion in 2020, from US$78 billion in 2018.

“This recovery will be driven by a combination of various sovereigns’ commitments to further sukuk market development, higher sukuk refinancing needs and our expectations of higher budget deficits for the major sovereign sukuk issuers in 2019-2020,“ he said in a report themed “Sovereigns-Global: Sovereign Sukuk Issuance to Recover Amid Moderate Oil Prices and Higher Refinancing Needs” released today.

Perjessy said he expects gross sovereign issuance to also rise further in the medium term as the sukuk issued by Gulf Cooperation Council (GCC) governments begin to mature.

Perjessy said Malaysia has by far the largest stock of outstanding long-term sovereign sukuk worth US$84 billion, followed by Indonesia (Baa2 stable) and Saudi Arabia (A1 stable), with around US$40 billion each.

“The three sovereigns and Qatar (Aa3 stable) have been the most active in promoting the market’s development,“ he said.

He said during 2015-2018, sukuk issues filled nearly 80% of Malaysia’s fiscal deficit financing needs, whereas they covered about a third of Qatar’s and Indonesia’s fiscal deficit and around 14% of Saudi Arabia’s.

Moving forward, Perjessy said Moody’s expects the three largest issuers – Malaysia, Saudi Arabia and Indonesia – to gradually increase their share of sukuk in fiscal deficit financing, further supporting the market’s growth prospects.

“In the medium term, gross issuance will rise further, particularly when GCC sukuk instruments issued after 2016 begin to mature in 2022 and beyond and are refinanced by issuing new sukuk instruments,“ he said.

He added that the Islamic Development Bank (IsDB, Aaa stable) remains by far the largest issuer among the supranationals, with more than US$16 billion of outstanding sukuk at the end of 2018.